ROLE OF BUSINESS ANGELS

Christophe Beaud

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

CONTENTS Page 2 1. Who are Business Angels 2. Angel Capital Market 3. Types of Angel Investment Strategies 4. Key Success Factors 5. Supporting Innovation 6. Business Angel Networks 7. 10 Lies and 10 Tips

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

WHO ARE BUSINESS ANGELS Page 3 Definition Business Angels are private investors who invest in unquoted small and medium sized businesses. They are often businessmen and women who have sold their business. They provide not only finance but experience and business skills .

Business Angels invest in the early stage of business development filling, in part, the equity gap.

[EBAN website]

Motivation • Expectation of high financial return • Playing a role in an entrepreneurial process • Satisfaction of being involved in an entrepreneurial firm

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

WHO ARE BUSINESS ANGELS Page 4

Main Differences

Personal Money Invested Firms funded Due diligence done Location of inv.

Contract used Monitoring after inv.

Involvement in mgt Exiting the firm

[Ten3 website, business angels ]

Business Angels

Entrepreneurs Own money Small, early stage Minimal Of concern Simple Active, hands-on Important Of lesser concern

Venture Capitalists

Money managers Fund provider Medium to large Extensive Of lesser concern Comprehensive Strategic Of lesser concern Highly important

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

ANGEL CAPITAL MARKET Page 5 Definition of Private Equity Private equity investing may broadly be defined as "investing in securities through a negotiated process ". The majority of private equity investments are in unquoted companies. Private equity investment is typically a transformational, value-added, active investment strategy. It calls for a specialised skill set which is a key due diligence area for investors' assessment of a manager . The processes of buyout and venture investing call for different applications of these skills as they focus on different stages of the life cycle of a company.

[EVCA Website]

Seed Start-up Expansion Replacement Capital Buyout

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

ANGEL CAPITAL MARKET Page 6

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

ANGEL CAPITAL MARKET Page 7

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

ANGEL CAPITAL MARKET Returns Page 8

[EVCA website]

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

ANGEL CAPITAL MARKET European Survey 2004 Number of analysed « business plans per business angel and per year » 26 Number of interviews done per business angel and per year 9.1

Number of first round investments per business angel and per year 2.3

Invested amount in Euro per deal et per business angel

[EBAN, Dec 2004]

133’069

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

Page 9 43 9.7

2.5

77’534

ANGEL CAPITAL MARKET European Survey 2004 (con‘d) Investment per Stage Seed Start-up Expansion Buyout 20 % 39 % 30 % 11 % Type of EXIT

[EBAN, Dec 2004]

Write-off Sale to the entrepreneur Sale to another shareholder Trade sale IPO 49 % 9 % 29 % 12 % 0 % Page 10

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

TYPES OF ANGEL STRATEGIES Page 11 Active Angel Investment Strategies • Lead angel investment strategy ->

experienced angel

• Manager investment strategy ->

looking for a job

• Corporate investment strategy • Acquisition investment strategy ->

owners of companies

->

strong need to control

• Professional services business development investment strategy ->

business development

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

TYPES OF ANGEL STRATEGIES Page 12 Passive Angel Investment Strategies • Angel consortium coinvestment strategy • Barter investment strategy ->

follow-on investor

->

providing assets

• Socially responsible investment ->

social conscience

strategy • Fund-based investment strategy ->

PE for the masses [Benjamin & Margulis, the Angel Investor‘s Handbook, Bloomberg Press, 69-94]

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

KEY SUCCESS FACTORS Page 13 1. High deal flow 2. Knowledge of the business and particular skills or contacts 3. Full trust in the management team 4. Own due diligence of the market and of the technology 5. Clear understanding of the revenue model 6. Realistic valuation of the company 7. Perfect understanding of the liquidity risk 8. Planning of sufficient financial reserves for future rounds

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

SUPPORTING INNOVATION

+ + + + + + +

Angel Point of View Knowledge of industry Knowledge of technology Knowledge of revenue model Scalability of the project First mover advantage Timing of commercialization Other investors

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

Page 14

SUPPORTING INNOVATION

+ + + + +

Entrepreneur Point of View Competences of Business Angels Complement competences Sharing experiences Short due diligence Longer investment horizons Page 15

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

BUSINESS ANGEL NETWORKS Entrepreneur Contact of BA Business plan evaluation and validation Drafting of business plan summary Investment readiness programme Preparation of a presentation

MATCHING

Confronting offer And demand Circulation of Business plan MATCHIN G Leverage funding -co-funding -bank loans Business Angel Identification of the business angel Training Identification of investment priorities BA added to database Investment Club/Forum Page 16

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

BUSINESS ANGEL NETWORKS Page 17 Regional Associations • EUROPE: European Business Angel Network (EBAN) • CH: Association of Swiss Business Angels Network (ASBAN) • • • • • • • Private Networks in CH BAS Business Angels CH, www.businessangels.ch

Bisange SA, www.bisange.ch

BrainsToVentures AG, www.b-to-v.com

Club Valaisan des Business Angels, www.bizangels.ch

MSM Investorenvereinigung, www.fininco.com

Start Angels, www.startangels.ch

Venturix AG, www.venturix.com

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

TOP 10 LIES BUSINESS ANGELS Page 18 1. Tomorrow I will tell you if I am interested or not 2. My due diligence will take only few days 3. My shareholder agreement is simple and held in one page 4. I feel absolutely comfortable with your company valuation 5. I will have plenty of time to help your company 6. I know personally several potential clients 7. I know in details your business niche 8. I will not interfere in your management decisions 9. I have excellent relations with retail banks 10. I will help you to find additional money for future rounds

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]

10 TIPS FOR ENTREPRENEURS Page 19 1. Appreciate the significance of time vs. money 2. The patent is not everything 3. Selling starts at the earliest possible opportunity 4. Economics of pricing – the value of the customer 5. Fail earlier, fail faster and fail often 6. 2 sources of negotiating strength: execution & competition 7. The value of partnerships 8. Complete financing plan – the strategic view 9. Plan funding around externally significant milestones 10. Structuring the investment: economics vs. control

WIPO-INSME International Training Program, July 12, 2006 Angel Investment, [email protected]